What would Labour do? Proposal for bill on temporary staffing, gig working and contracting

Angela Rayner, the deputy leader of the UK Labour Party (which polls suggest is likely to win the next UK general election, due to be held by the end of January 2025), talked on Sky News last week (3 February 2024) about introducing a bill "within 100 days" of an election to make major changes in the world of temporary staffing, gig working and contracting, as part of its "new deal for working people".

These changes would include day one employment rights for all workers, a ban on "exploitative" zero-hours contracts (which is effectively the main agency worker and gig worker mode of engagement) and an end to "bogus self-employment".

The detail is not yet clear but suppliers (including staffing companies and platforms) and users of temp and zero hours workers and contractors should start thinking now about the likely impact of the promised changes on their commercial models and costs, including longer term supply arrangements to which they are already signed up.

Whatever the rights and wrongs of these proposals, our view is that it may be very difficult to introduce quick and effective legislation to implement many of these changes. 

The challenge of eradicating 'bogus self-employment'

Simplifying the test of who is and is not genuinely self-employed is notoriously difficult. The Office of Tax Simplification famously said in 2015 that if it were able to find a solution to the problem of defining what was and was not genuine self-employment then it would then immediately move on to providing world peace. If it were easy then the UK and other countries would have done it 40 years ago – this is just as much of a difficult area in the US and Europe as it is in the UK. 

The current tests in the UK rely mainly on complicated case law tests going back many decades. These can be difficult to apply to many modern working situations involving remote working and/or relatively short-term assignments which evolve rapidly. On the other hand, any attempt to resolve the problem with a precise new statutory definition of self-employment/employment could well lead to loopholes and gaming of the system.

Osborne Clarke predictions

• There will need to be a lot of consultation and it may be that effective legislation cannot be implemented quickly. 
• The UK may seek to adopt a three-to-five-factor test similar to that used in the US ABC+ tests, or the five factorial test in the EU's proposed Platform Worker's Directive. The latter has the benefit of involving UK convergence with EU regulation which may be part of a Labour government approach to building closer links with the EU generally. Having said that, the final wording of the PWD is still unresolved at EU level – it is increasingly apparent that it is hard for the EU to find a combination of tests that everyone agrees is clear and fair. Therefore this may not be a quick solution. 
• There may also be an increase in "chain liability" risk such that entities at the top of a chain in which false self-employment exists will bear the tax and employment liabilities that intermediaries fail to discharge, unless they can show they did various checks on their supply chain. This approach builds on the approach in the 2021 IR35 regime and was proposed as part of the recent consultation on regulating umbrella companies. 
• One way to reduce false self-employment would be (to the extent it is a mechanism to avoid employers' national insurance contributions (NICs) and/or some income tax) to abolish NICs and apply the same (higher) rates of income tax to all types of income. However, this is unlikely to happen – it would be politically difficult for a new government to do something that could be seen as increasing income tax. 
• In the meantime, this year HMRC will significantly increase IR35 enforcement activity, use its powers under the agency worker tax regime more widely, and apply pressure on contractor models by continuing action under the managed service company (MSC) regime. Each of these existing tax regimes already allow HMRC to target what it sees as false self-employment arrangements. Might this increased activity, perhaps with extra funding for HMRC enforcement teams from a new government, be enough to eradicate many of the most obvious areas of what may be seen as "bogus self-employment"?

'Exploitative' zero-hours working and day-one rights for all 

Zero-hours work (which we take to mean people being paid on an hourly/daily rate basis with no guaranteed regular hours) takes many forms.

It ranges from a consultation with a doctor in Harley Street or a conference with a top barrister to someone doing a bit of garden clearance or baby-sitting. It also, of course, includes a lot of traditional short-term agency worker staffing arrangements like agency nurses, locum teachers and many industrial/warehouse roles, as well as classic gig working arrangements like delivery, taxi app working and home tutoring.

Are all these business models going to be banned as currently operated? Is it really feasible for all rights to apply from day one for all types of worker, however short term or frequent their work is, and however administratively burdensome that would be in relation to giving certain rights to particularly short-term workers? 

Osborne Clarke predictions

• It will be complicated to legislate effectively. Again, there will need to be a lot of consultation and we doubt that effective legislation can be implemented quickly.
• We wonder if legislation will in fact focus only on "exploitative" zero-hours arrangements and set about defining what is exploitative? That may focus on payment thresholds, so that only lower paid workers get relevant protections, and potentially exclude any arrangement where the hirer is a consumer or below a certain size. 
• Will some rights be excluded from what temps and gig workers get from day one? In her interview, Ms Rayner seemed to focus on aspects such as sick pay but it will be interesting to see if the commitment extends to other day-one rights.
• Does the Right to Predictable Working Hours legislation, likely to come into force from September 2024, already achieve most of what the Labour Party is proposing? This legislation will give substantial rights to temp and zero hours workers, whether or not there is a change of government, and will require many suppliers and users of those workers to make significant changes to the way they deal with them. 

Is part of the solution under our noses?

One answer to some of these challenges might be to set up licensed and properly regulated "employer organisations" in the fashion of guilds through which temps, contractors and gig workers can be engaged.

These organisations could act as employers of record or agents of record for self-employed/zero-hours workers, running their pensions, providing an ongoing holiday pot and benefits arrangements from day one of any engagement, providing access to training and making financial services available to them including access to mortgages and vehicle finance. Matthew Taylor's Review suggested this to Theresa May's Conservative government seven years ago and the idea still makes sense.

We can imagine that some umbrella and employer-of-record companies might welcome such a licensing arrangement, especially if it meant that the "dodgy" end of that market was thereby driven out of business.

It will take quite a shift in attitude for policy makers to see umbrella and employer-of-record companies as a solution rather than part of the problem, and a response to the recent HMRC consultation about umbrellas is still awaited, but it is to be hoped that this option is explored.

What should businesses do now?

If Labour wins the election, businesses should be ready to engage in the consultations that seem likely to start soon after it.

In the meantime, keep an eye on announcements of policy developments in these areas. All involved in the supply or use of temps, contractors and gig workers may have to make significant changes to their business models quite quickly early next year, and be ready to renegotiate some aspects of long term supply arrangements. And all involved in labour supply chains should be very careful about how they word long-term supply agreements (such as managed service provider arrangements) that they may be agreeing now – those agreements will need to anticipate potential new processes and new costs.

We are of course working out what options organisations will have and what mechanisms will need to be introduced into agreements to minimise the impact of these changes. Let us know if you would like to discuss the various options you are likely to have.